Indian economy grew 6.2% in Q3; FY25 growth pegged at 6.5%

Indian economy performance in Q3

The Indian economy recovered in the December quarter to grow at 6.2 percent after sinking to a seven-quarter low of 5.6 percent in the July-September period, according to data released on February 28.

The third quarter number was a tad below the MC poll median of 6.3 percent but helped retain the full-year forecast of 6.5 percent, according to second advance estimates.

"The sequential uptick was led by a pickup in the growth of private and government consumption and a narrower drag on account of net exports, even as that in gross fixed capital formation eased marginally between these quarters," said Aditi Nayar, chief economist, Icra.

India’s growth slipped to a near two-year low of 5.6 percent in the second quarter, with the government projecting 6.4 percent growth in the first advance estimate.

The Q1FY25 numbers were revised downward by 20 bps to 6.5 percent from 6.7 percent projected earlier.

The government also revised the forecast for FY24 and FY23.

FY24 forecast was revised upward to 9.2 percent from 8.2 percent in the provisional estimate released in May 2024.

The FY23 growth now stands at 7.6 percent from an earlier estimate of 7 percent.

The numbers indicate that the growth drop in FY25 is sharper than earlier expected.

"Real GDP growth rates for 2022-23 to 2024-25, are now estimated at 7.6%, 9.2% and 6.5% respectively. This shows a sharp fall in real GDP growth from 2023-24 to 2024-25 of nearly 2.7% points. The nominal growth curve has also been lifted upwards as compared to earlier estimates, showing healthier growth rates of 14%, 12% and 9.9% respectively in these three post COVID years. Thus, the post COVID recovery was clearly underestimated earlier," said DK Srivastava, Chief Policy Advisor, EY India.

Manufacturing still in slow lane, agri and services pick up

Quarterly numbers show that most of the pick up in the third quarter came from agriculture and services sector. Agri growth at 5.6 percent compared with 4.1 percent in the previous quarter was at a six quarter high.

Manufacturing, despite the pick up to 3.5 percent from 2.1 percent, earlier was still low, while construction growth slowed further to 7 percent from 8.7 percent.

Services or tertiary sector logged a faster rate of growth at 7.4 percent compared with 7.2 percent in the previous quarter.

On the expenditure side, there was a pick up for both private and government consumption, but capital formation remained muted at 5.7 percent compared with 5.8 percent in the previous quarter.

Until January, the government has been able to utilise just 74.4 percent of its lower revised target of Rs 10.2 lakh crore capex spend.

Investment concerns

This also has a bearing on full year numbers, which show fixed capital formation slowing to 6 percent from 9.8 percent, even as private consumption picked up from 5.3 percent in FY24 to 6.8 percent in FY25.

The economy is likely to log a faster rate of growth in the last quarter of the current fiscal to reach the 6.5 percent mark for the current year.

Investment rate or the rate of capital formation at 29.5 percent hit the lowest level in four years in FY25.

"Investment growth continues to remain muted, which is a cause of concern. Despite a strong uptick in the public capex in Q3, investment growth has continued to slow over the past three quarters. Additionally, industrial and manufacturing activities rebounded in Q3 but continues to remain muted," said Rajani Sinha, chief economist, CareEdge.

Outlook

Chief Economic Advisor V Anantha Nageswaran noted that the revisions bear well for future trajectory of growth as well.

"The capex of government is very much in line with the previous financial year. Govt capex has picked up steam coming into fourth quarter," he highlighted.

Besides, the economic advisor was of the view that the GDP growth will also receive a fillip owing to Mahakumbh activity, which witnessed over 600 million visitors.

"We should not be held hostage by uncertainties. We are one entity where the uncertainties are lower," he further noted.

The economy will likely grow at the same pace in the coming fiscal as well. The 18 economists in the MC Poll have predicted a 6.6 percent growth for FY26.

Experts indicate that the fiscal and monetary easing in the form of tax rationalisation and policy rate cut is expected to help sustain growth despite global headwinds.

"India’s economic momentum is expected to sustain due to strong rural demand and recurring urban demand," CEA said.